1.0
INTRODUCTION
A business man will
usually have a bank account and when he receives cash, he will pay it into his
account. When he needs cash he will withdraw it from his bank account. He pays
cash into his bank account by completing a paying slip and withdraws cash by
drawing a cheque on his account. In this Note you will learn about things
peculiar to the bank as an institution..
2.0
OBJECTIVES
At the end of this note
you should be able to:
• explain what a bank
is
• explain everything
peculiar to the bank e.g cheque, stale cheque, crossed cheque, open cheque, and
bank charges.
3.0
MAIN CONTENT
3.1
Bank
A comprehensive term
for a number of Institutions carrying on certain kinds of financial business,
several types of bank are to be found in Nigeria:
i. Savings Banks,
which accept deposits,
ii. Commercial (or
joint-stock) banks which do most kinds of banking business- accepting deposits,
allowing customers the use of cheques, granting credit by loan or overdraft,
discounting bills of exchange, foreign exchange transactions, acting as agents
for customers in the sale or purchase of stock exchange securities, acting as
executors or trustees and providing safe custody by valuables.
iii. Merchant banks
which still to a considerable extent specialize in business connected with
bills of exchange, especially the acceptance of foreign bills,
iv. Central banks,
the main business• of which is to carry out a country's monetary policy. There
are also
v. Investment banks
but this have never been popular in Nigeria. They acquire shares in limited
company on their own account and act merely as agents for their customers.
Sometimes banks are established to undertake specialized banking functions for
particular industries, as in Nigeria where there is Agricultural bank. There
are also a number of firms which describe themselves as Industrial bankers,
although most of them understand some ordinary banking business, they are
primarily finance houses whose main concern is with the financing of hire
purchase..
3.2
Cheque
A cheque is an order
in writing addressed to a banker asking the banker to pay a certain sum of
money to the person named in the cheque or to the order of that person, or to
the bearer of the cheque. The essential ingredients of a cheque are:
• The cheque must be
an order in writing and the banker must comply except in certain circumstances.
• It must be in
writing and not verbal, but the writing need not be on special paper, though
almost all banks issue standard cheque forms for convenience.
• The sum to be paid
must be certain. It is not enough to write "pay some naira to John"
it should be "Pay N20 to John
• There must be a
payee (person to whom the money will be paid) who may be the person name in the
cheque or the person to whom the person named has ordered to be paid. The payee
may in fact be the person in possession of the cheque.
• There must be three
parties to a cheque, viz the drawer, the drawee and the payee. The drawer
(usually the owner of the cheque) is the person who draws a cheque on the
drawer bank. The drawee is the bank to whom an order to pay is given. The payee
is the person to whom the money would be paid. Below is a specimen
"Cheque"
(Please see a Life
Sample)
To file a cheque is a
very simple thing but care must be taken to ensure that the figure and words
are properly written to make alternation very difficult. All that the drawer
does is to write the name of the payee (except where bearer is the payee), the
amount to be paid and sign his usual signature. Of course, the date should also
be written. The main .108
part
of the cheque is then torn off along the dotted line and handed to the payee.
The payee presents the cheque, as soon as possible, to the drawer bank and gets
the sum stated therein.
The remaining part of
the cheque, variously called counterfoil or stub is retained in the cheque book
for record purposes. It is not a strict requirement that the purpose of the
payment should be state in the counterfoil. It is only intended to facilitate
accurate accounting and the practice is today almost universal.
3.3
Stale Cheque
As defined by the
bill of exchange Act (1882) a cheque is "Stale" if its date shows it
to have been in circulation for 'an unreasonable time', the exact period of
time never having been legally defined. Most banks regard as 'Stale' cheques
presented six months after date. Such cheque being required to be confirmed by
the drawer, though some banks take no action unless a cheque has been drawn
twelve months.
When the drawer
return a cheque on the condition that the cheque is 'Stale' the accounting
treatment for such a cheque will be
Debit the cash book
for the sum
Credit the account of
the payee.
Note:
the cash book has been credited when the cheque was first drawn
and given to the payee. Then also the account of the payee in the ledger was
debited. Thus the reverse entry now.
3.4 Dishonor
Cheque
Ordinarily, the bank
should pay a cheque presented to it. There are however, instances when the bank
refuses to pay a cheque. In this case, the cheque is said to be dishonored and
subsequently returned to the drawer. Such instances are:
• Where the drawer
has not enough money in his account with the bank to cover the amount on the
cheque.
• Where the cheque
has no date or has a future date.
• Where the drawer's
signature is different from the specimen with the bank.
• When the amount in
figure differs from the amount in words.
It is the practice of
the bank to specify the reason for the dishonor, on the face of the cheque
before returning it to the drawer. Words such as these are used.
• to drawer RID
• Uncleared effect
U/E
• No funds N/F
• Insufficient funds
I/F
A dishonored cheque
may be represented to the bank for payment when the reason for the dishonored
is settled.
3.5
Crossed Cheque
A crossed cheque is
one that has two parallel lines drawn across its face either with or without
the words `&. Co. as was mentioned before, the holder of a crossed cheque
cannot receive cash over the counter. The sum specified in the cheque must be
paid into his/her bank account. sometimes, the holder of a crossed cheque has
no account with the drawee bank and to receive payment becomes a real problem.
He may do one or two things. He may pay in the cheque into his account in
another bank if he/she has such account, or where this is not possible, endorse
the cheque to person who has a bank account. If he succeeds, the endorse (the
person to whom he/she endorsed the cheque) will then pay him cash equal to the
sum state in the cheque.
A crossed cheque may
be either general or special. It is general when it has on its face two
parallel lines with or without the words "& Co". Some crossed
cheques may bear such expressions as "Not negotiable" and "A/C
payee only" such expression are additional safe guards adopted by drawers
of cheques, to ensure that cheques are not cashed by unauthorized person.
Specimen General Crossings.
A cheque is said to be specially crossed when it specifies the
name of a bank at which payment will be made. The effect of this is that the
holder of the cheque cannot receive payment except from the specified bank
Specimen special
crossings.
3.6
Open Cheque
An open cheque is a
cheque that is not crossed. Crossing means having two parallel lines across the
face of the cheque either with or without the words "& Co". An
example of an open cheque is the specimen cheque no 997029 made in the name of
Mr. Adeola Kupoluyi for the sum of one million Naira (N10,000,000).
All that the holder
i.e. the payee of an open cheque need to do, is to present it to the drawer
bank and receive cash over the counter. Here lies difference between the open
cheque and the crossed cheque. The holder of a crossed cheque cannot receive
cash over the counter. The sum specified in the cheque must be paid into his
bank account.
3.7
Bank Charges
For services render
by the bank, banks usually charge some fee for the services. This item included
charges for cheque books, for keeping current account (charges on turnover),
for discounting bills, for issuing drafts. And nowadays many is not all
commercial banks charge certain amount the tellers but the sum charged varies
from bank to bank. Such expenses are losses and are, therefore, debited to
profit and loss account.
4.0
CONCLUSION
You must understand
how bank operates thus the reason for this Note because the operation of banks in
relation to its customer has an important implication on the transactions
engaged in by the banks customers. Without which a true financial position of
the organization concerned cannot be ascertained.
5.0
SUMMARY
Having a bank account
by an organization involves using cheques for withdrawal, using teller for
payment with the bank, this the need to be able to differentiate from open
cheque which value can be obtained for, on the counter and crossed cheque which
has to go through a bank account before value can be obtained for it. There is
also a time limit within which value could be obtained for a cheque on expiry
of this time the cheque is said to be stale for all this services bank do debit
its customer account for the services rendered, this is known as bank charges.
This charges are debit item in profit and loss accounts.
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